Dilution definition

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Practical steps involved in implementing growth shares

Practical steps involved in implementing growth shares What are growth shares and are they appropriate? Growth shares, also known as value shares or hurdle shares, are a special class of shares that have restricted rights. These rights are designed to allow employees only to participate in post-acquisition increases in the value of the company. For more detailed explanation of the key features of growth shares and when they are normally introduced by a company, see Practice Note: Growth shares (value shares). Key features of growth shares Growth shares are specially constituted and classified under the articles of association of the company as a separate class of shares from the existing shares in the company. They will be issued to selected employees and will be subject to the provisions of the articles of association and also either to the subscription agreement that each participating employee will be asked to sign or the option documentation that they enter into, where the employee acquires their growth shares via an option over...

Why do companies use share schemes?

Why do companies use share schemes? Why not just reward staff with cash? It is often a simpler, less burdensome way to reward and incentivise employees. This Practice Note analyses the advantages and disadvantages of shares schemes as a general concept. For further details on the advantages and disadvantages of each individual type of scheme, see Practice Note: The advantages and disadvantages of each share incentive arrangement. This Practice Note details: • why do companies implement share schemes? • what are the types of share schemes? • the advantages of share schemes (from a company and employee perspective) • the disadvantages of share schemes (from a company and employee perspective), and • use of share schemes Why do companies implement share schemes for their employees? There are numerous reasons why companies choose to implement employee share schemes and many of these depend on the size of the company and its specific objectives. Some common reasons for companies utilising share schemes include, but are not limited to: • recruiting,...

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Anti-dilution ratchet provisions—articles—non-leveraged investment

Anti-dilution ratchet provisions—articles—non-leveraged investment Add new Article 14 as follows: 14. Anti-dilution 14.1 In this Article 14, unless the context otherwise requires the following expressions shall have the following meanings: New Securities means any Shares or other securities convertible into, or carrying the right to subscribe for Shares, issued by the Company after the date of adoption of these Articles. 14.2 If the Company issues any New Securities at a price per Share less than the Issue Price of the Preferred Shares (Qualifying Issue), the Company shall, subject to Article 14.6, make a bonus issue of such number of [Ordinary OR Preferred] Shares (Anti-Dilution Shares) to each holder for the time being of Preferred Shares (Exercising Investors) calculated as follows (rounding down to the nearest whole Share): [ [Full Ratchet] ADS = (TP / P) – N Where: ADS = the number of Anti-Dilution Shares; TP = the total amount subscribed (whether in cash or by way of conversion of loan) by such Exercising Investor for...

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Share Incentives weekly highlights—17 April 2025

This week's edition of Share Incentives weekly highlights includes (1) an update from the FCA on its PISCES sandbox framework following proposals in consultation paper CP24/29, (2) a focus on executive pay as the AGM season continues and (3) a new Q&A which considers whether an option holder can claim business asset disposal relief in relation to the sale of shares resulting from their EMI option exercise if a disqualifying event has previously occurred.

Spreadsheet says 'no', Tribunal says 'yes'! FTT accepts rectification for entrepreneurs' relief (Cooke v HMRC)

Private Client analysis: In 2019, Jonathan Cooke sold his entire shareholding in ISG Holdings Ltd (IHL) and realised a gain of approximately £600,000. Mr Cooke had initially acquired his shareholding under a commercial agreement to take a 5% share in the company. Due to a spreadsheet error, he only actually acquired 4.999% of the ordinary share capital, or less than the 5% holding needed to qualify for entrepreneurs' relief. HMRC accordingly denied the claim. Mr Cooke appealed on grounds that if appropriate proceedings were brought in the High Court, it would order a rectification of the original acquisition documents (providing that Mr Cooke in fact held 5%) and accordingly the First-tier Tax Tribunal (FTT) should proceed on the basis the rectification had been ordered and allow the claim for entrepreneurs' relief. The taxpayer won. Written by Tom Rank, partner, and Calum Young, associate, both at DWF.